The New York Times reports that Freddie Mac (NYSE: FRE) CEO Richard Syron ignored warnings four years ago that Freddie was taking on too much risk by underwriting poor quality mortgages and that its capital base was too thin. Last week, the President signed a bailout bill that increases the national debt limit by $800 billion -- the potential size of the bailout of Fannie Mae (NYSE: FNM) and Freddie.
If the sources that the Times is quoting are right, the blame for Freddie's portion of that bailout rests with Syron. It interviewed Freddie Mac's former chief risk officer, David A. Andrukonis, who warned Syron that it was underwriting bad mortgages. According to the Times, Andrukonis "recalled telling Mr. Syron in mid-2004 that the company was buying bad loans that "would likely pose an enormous financial and reputational risk to the company and the country."
Syron claims that he received enormous pressure from an un-named lawmaker pushing Freddie to take on the bad loans. So the Times reports that as Syron and others sat in a conference room reviewing the memo, Syron "refused to consider possibilities for reducing Freddie Mac's risks. He said we couldn't afford to say no to anyone."
Did Syron get paid millions of dollars to take orders from Congress? It's not clear why that should be such a high paying job. Nor is it clear why American taxpayers should pay the price for Syron's inability to manage Freddie. While $38 million -- .0048% of the bailout -- seems like a drop in the bucket compared to the magnitude of the problems, it looks like Syron made the decisions that created the need for the bailout.
I think he would be the right taxpayer to start bailing out Freddie's mistakes. Then we can move on to Freddie's board members. The idea of private profit and socialized losses has got to end. Let's kick off the beginning of that end with Syron.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
8-06-2008 @ 2:50AM
Luckyjmt said...
exactly what I say, If a person who owns a company manages it badly they take the financial hit , so should this guy, instead we are allowing him to make millions ! What's wrong with this picture?????????
8-11-2008 @ 3:16PM
crowsack2 said...
It will always be some unkown source that makes a CEO, congressman, President etc.exploit the "average" taxpaper. It use to be In God We Trust all others CASH. Now its CASH first god second.
8-22-2008 @ 4:20PM
sickandtired said...
Why is Syron still there? Or is he above the fray like Bush and Congress? Wake up! The patient is going to die without a full governmental transplant.
9-06-2008 @ 9:48AM
rod said...
We should be suspicious that someone in a position of power is protecting Syran for a reason (perhaps some mutually guilty connection to this mess). If Syran reports an unamed lawmakers pressuring him, there must be an investigation into the relationship and the lawmaker's incentives.
Further Questions to be anwered:
1) who (lawmaker -LM)?
2) Why was this LM pressuring him? Who was pressurring him? How much were the contributions from who (that may have been benefiting from slack money to build/sell homes to ill-prepared people?
**Finally those involved should have fines and jail time if their actions were at best , negligent (at worst- illegal) and if they caused harm or loss of value (for their greedy gain).
9-07-2008 @ 11:57PM
P Houston said...
burn him at the STAKE!
9-14-2008 @ 5:47PM
Suzi said...
Your idea re: Richard Syron's $38 million compensation is just a start in the right direction. What about Daniel Mudd, the exiting Fannie CEO, who could collect $9+ million in severance pay, retirement benefits & deferred compensation? What about Franklin Raines, prior Fannie CEO, & the millions he raked in for mismanaging the company? What about the accountants who manipulated the books for Fannie & Freddie? What about the New York Stock Exchange that allowed Fannie's shares to keep trading in 2003 even though the company had not submitted a required financial condition report in a year which should have resulted in a delisting? And, finally, last but not the least of the offenders, Congress! Fannie & Freddie with their army of lobbyists and bundle of company money funneled into Congressional campaigns bought the silence of the people the American taxpayers elected to represent us. This resulted in many members of Congress turning a blind eye to the lax regulation that these GSE's enjoyed. Any attempts to impose stringent regulations were met with threats and bills voted down. I would like to know the names of all the members of Congress who received campaign donations from Fannie & Freddie, and subsequently stifled, in any way, to bring these behemoths under control. I would bet any amount of money the list is long and bi-partisan. Then we will have a list of the people (Fannie & Freddie exec's & directors, accountants, New York Stock Exchange officials, SEC officials, Senators & Congressional reps, etc.) who should be sued for financial remuneration to benefit taxpayers. They should also be investigated by the appropriate authorities for criminal indictment resulting in fines & prison sentences. I don't want a Congressional Investigation which would be like the fox guarding the chicken house. Nor do I want a special prosecutor appointed by the US Atty Gen which would cost taxpayers millions and result in the investigation getting bogged down in the sex lives of the perpetrators. How can this be accomplished? Any ideas please let me know.
Signed,
A very frustrated and angry taxpayer
9-18-2008 @ 10:29AM
M said...
As a former employee of Freddie Mac--I was there when Dick Syron came on board and announced that Freddie would be buying every loan possible! I worked in Quality Control of NON-PERFORMING loans, and those of us in the trenches knew this was a bad decision. WE who wanted to believe in this organization--and who (unfortunately) retained our Fre Stock are the ones who are suffering as the top "executives" walk away with millions. What's wrong with this picture?